Creit - The Property Investment Decision

The vice-president of acquisitions for Canadian Real Estate Investment Trust (CREIT) was contemplating two investment opportunities facing his firm. CREIT had been very aggressive recently in an attempt to increase the size and diversity of its portfolio. One potential deal that he was contemplating involved the purchase of a 161-unit apartment building in a Montreal suburb, while the other potential deal involved the purchase of a retail complex in a Chicago suburb. Both deals were under a due diligence period, meaning that CREIT had a short period of time to review the properties and decide whether or not to proceed with either purchase. He had to make his recommendation to the senior board of CREIT, and he wondered what specifically about each property was attractive or unattractive, whether the respective markets justified the price levels, and if the respective properties were consistent with CREIT's acquisitions strategy. The case introduces real estate investment trusts and demonstrates some generic concepts relating to the valuation of real estate assets, including discounted cash flow and comparable sales analysis.